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CWA # 58, 23 September 2018
Southeast Asia
Malaysia’s China Moment: The Mahathir Gamble

  Aparupa Bhattacherjee

Halting of two major Chinese projects - East Coast Railway Line (ECRL) and Trans Sabah Pipelines, which were an integral part of China’s Belt and Road Initiative (BRI) are perceived as a major setback to the Chinese investments. Will Mahathir be able to sustain this? Is Mahathir’s decision more to do with domestic politics? Will Mahathir’s decision make Malaysia-Singapore relations a collateral?

Aparupa Bhattacherjee is a PhD Scholar, NIAS

Malaysian Prime Minister Mahathir Mohamad’s visit to China in August 2018 and his announcement to halt two major Chinese funded projects in Malaysia has created an international stir.

Halting of two major Chinese projects - East Coast Railway Line (ECRL) and Trans Sabah Pipelines, which were an integral part of China’s Belt and Road Initiative (BRI) are perceived as a major setback to the Chinese investments.

A section sees the move by Mahathir as a first blow against the Chinese expansion in the South and Southeast region through their investment funding. But there are larger questions. Will Mahathir be able to sustain this? Is Mahathir’s decision more to do with domestic politics? Will Mahathir’s decision make Malaysia-Singapore relations a collateral?

 

Deciphering Mahathir’s China Stance

Mahathir Mohamad, came to power in May 2018, with an electoral promise of dealing with the debt trap of Chinese investment in Malaysia. His predecessor Najib Razak was known for his Chinese tilt; most of the Chinese big project investments were signed and started under his regime. He was blamed for signing bad deals with China to bail out his graft inundated state investment funds. These deals left Malaysia struggling under $250 billion debt.

The above created an anti-Chinese sentiment which was encashed by Mahathir during the 2018 elections. Thus, his visit to China and his announcement to halt two projects was not a surprise and was expected to a larger extent. However, to expect this to be an anti-Chinese stand by Malaysia leading towards ruining the Malaysia-China relationship is farfetched.

China and Malaysia share a bonhomie. China is Malaysia’s largest trading partner for the last nine years. China is also Malaysia’s largest investor and also the main construction contracting partner.

Mahathir has been credited for this bonhomie! During his previous tenure (1981-2003) he built closer ties with China through his Look East Policy for industrialisation of Malaysia. During his 22 years, he had visited China seven times. As a result, the bilateral trade jumped from $388 million in 1985 to approximately US$1.8 billion in 1993. Plus, Malaysia is also credited for China’s full dialogue partnership of ASEAN in 1996.

Given the above history, the Chinese were not unhappy when Mahathir came back to power this year. However, in Mahathir’s end situation is different; Najib’s 1MDB deal scandal and growing resentment against the huge debt and ineffective Chinese investment had made the halt of two projects essential for Mahathir. Nevertheless, it will be naïve to take this as Mahathir taking steps against Malaysia-China relationship and against Chinese investment.

Over an interview to New York Times, he stated that he had evidence that ECRL could have been built by the local company for about half the $ 13.4 billion that Najib agreed to pay State-owned China Communication Constructions. He also blamed that even though Malaysia had already paid $2 billion of the total $2.5 billion for pipeline project but nothing has been built yet. Unexpectedly, there was no report stating that Mahathir has talked about these issues to his Chinese counterparts during his five days visit. The other issue that Mahathir has kept mum about is Low Taek Jho, the Malaysian financer wanted for his role in the 1MDB scandal, who Malaysians believe is hiding in China.

It appears that both Mahathir and China have played diplomatically. Mahathir mentioned about these projects only on the last day of his five days visit. Additionally, he just halted the projects and given an indication that this may be open to discussion. Similarly, China for whom these projects are significant as it is part of their BRI do not seem perplexed. The official statement has reinstated the ‘strategic and multi-faceted relationship of Malaysia and China’.

Hence, it’s clear that the halting of the projects is just Malaysian compulsion rather than their political manoeuvring against Chinese inroad expansion. As mentioned above China holds a significant place in the Malaysian economy, Malaysia acknowledges this fact.

Whereas, for China, the Malaysian project halt is a minor hiccup similar to the one happened in 2011 when Myanmar halted Chinese Myitsone dam project. China is well prepared to handle this minor hiccups.

 

Malaysia-Singapore relations: Collateral?

Mahathir decision to suspend the ECRL and Sabah pipeline projects does not impact Singapore, as this project would have focused on internal connectivity. ECRL was planned to be railway linking Port Klang on the Straits of Malacca to Pengkalan Kubor in northeast peninsular Malaysia. This also explains why the project was so vital for China’s BRI plan.

However, in general, Singapore-Malaysia relations did seem to be impacted negatively by Mahathir coming to power. Mahathir’s previous reign did not witness good relationship with Singapore, unlike China. Plus, his decision to withdraw Kuala Lumpur-Singapore High-Speed Rail (HSR) project, the minute he returned to power strained the relationship and made Singapore apprehensive. Similar to the reason for suspension of the two Chinese projects this decision was taken in order to deal with rising debt of the country.

Nevertheless, Mahathir’s government decided to not to cancel the project as it will be cost intensive but negotiated regarding delaying of the project with Singapore.  Fortunately, Singapore agreed and on 5 September a new MoU was signed by Malaysia and Singapore to delay to project by two years.

Thus, it seems Malaysia-Singapore relationship which has even historically been dicey, is as of now back to a stable. But whether Mahathir reiterates the good relationship with Singapore similar to his predecessor Najib is something to be watched upon.

To conclude, it is clear that Malaysia’s decision to halt the two Chinese project has nothing to do with them taking a stand against China. This decision is purely a decision taking for bailing the country out of the massive debt, which is evident from the similar decision taken for the project with Singapore. The decision is not going to impact the overall Malaysia-China relationship.

 

COMMENTS

Sourina Bej

With China’s expanding geo-economic foot print, debt crisis in the form of soft loans has become a concern and this is not the first time any Southeast Asian country has used this issue as a political gimmick and later gone ahead to forge larger economic sell out to avoid a bad loan. Under the political show, is Malaysia heading towards a larger economic crisis? And will the BRI and the Chinese debt trap create the pathway for another Asian economic meltdown?

 

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